Transforming the Retained Finance Organization

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When finance organizations are tasked with reducing costs, the response is often to centralize or streamline the operating model by outsourcing or creating shared service centers or centers of excellence. These efforts can result in a myopic focus on the potential savings at the expense of the retained finance organization and its ability to provide value, insights and decision support to the business.

“Transforming the retained finance organization represents a significant opportunity for CFOs to execute value-added activities, such as analytics and business collaboration, and become a true strategic partner to the business,” says Steven Ehrenhalt, principal and Global Finance Transformation leader, Deloitte Consulting LLP. “Failing to seize the opportunity, on the other hand, could eventually diminish finance’s strategic role and cede business analytics and other decision-support responsibilities to business-owned functions like marketing,” he adds.

Three Focus Areas for Transforming the Retained Organization

Positioning the retained finance organization to become a stronger partner to the business requires CFOs to address three key areas: capacity, capability and collaboration.

Brad Smith

Capacity—Centralizing or outsourcing transactional finance activities expands the retained organization’s capacity. CFOs must decide what to do with that capacity—realize savings through headcount reductions, reinvest in the retained finance organization or a combination of the two. If the decision is to reinvest, the reinvestment should be made where it will impact the overall organization’s strategy and value drivers the most. Targeted business interventions need to be made. “For example, a reinvestment can be made to enable the retained finance function to provide specific data analytics and predictive modeling to support business decision-making processes,” says Brad Smith, a principal in Deloitte Consulting LLP’s Life Sciences practice. “This type of support typically has a tangible ROI, giving the CFO a tool to benchmark the effectiveness of the retained finance function.”

Capability—With the change in delivery model, the responsibilities of retained organizations should change dramatically. Finance leaders need to define expectations of the restructured roles, observes Mr. Smith. A fundamental change in duties and tasks involves proper training and may require hiring new talent. Learning and development offerings should be used to identify and shore up skill gaps. By aligning the growth and development of talent with a clear path for career progression, an organization can cement its ability to retain top talent and attract in-demand recruits.

Collaboration—Once the CFO determines where to target business interventions, the retained finance team needs to reach out to various business functions to help them understand how its role has changed—and for the better. The finance team should be prepared for a lukewarm reception from some functions. Not every function will welcome the new partnership as finance is often viewed primarily as a numerical gatekeeper and reporter of historical performance. “Finance can overcome that stigma and gain trust by consistently providing proactive, data-based, strategic and operational insights that help drive enterprise-level value creation,” Mr. Smith says.

Using Targeted Interventions to Increase Finance’s Effectiveness

Targeted finance interventions can provide value to companies in myriad ways. Take, for example, the scenario of a life sciences company that chooses to centralize back-office activities before a major divestiture and several acquisitions. With a hyper-focus on the execution of these transactions, the efficiency and effectiveness of the retained organization post-centralization can become a low priority. Haphazardly integrating activities can leave the enterprise overextended, and as a result, business-partnering activities might slip. CFOs can prevent this outcome by addressing capacity, capability and collaboration opportunities for the retained finance organization.

Capacity—In the case of a divestiture or acquisition, the finance operating model is already being turned on its head as the new organization is formed. In this scenario, many people typically are given broad responsibilities after the transaction closes. People in more knowledge-based roles still have some transaction-based activities within their responsibilities and vice versa. These inefficiencies would leave the organization overworked. The notion that the teams could provide new analyses would be unrealistic.

Diane Ma

Before that occurs, CFOs can assess the current state of affairs, identify the biggest pain points and redesign where activities should sit. For instance, the segment finance team may own building and posting the expense accruals while tracking actual versus budgeted spend in the current state. Consolidating the transactional and time-intensive pieces of these activities under the shared services center accounts payable team could create capacity. How should the CFO use this newfound capacity― should it be taken to the bottom line or reinvested in the retained organization? “By evaluating value drivers for the organization, the decision should become clear,” says Diane Ma, a senior manager at Deloitte Consulting LLP.

Capability— By thinking through where the targeted finance interventions should happen, CFOs can re-prioritize how the team spends its time. This shift in expectations and responsibilities can expose capability gaps in the talent pool, if, for instance, the finance team is now expected to provide insight on what type and amount of investments business partners should be making. “CFOs can proactively review the capabilities mapped to each role in the retained organization based on these newly identified responsibilities. Doing so will equip team members to answer such questions,” Ms. Ma notes. Moreover, proactively addressing the capabilities needed in the new organization makes it much easier to align professionals to the best-fitting roles, slate high-performers for increased duties and identify existing capability gaps. Defining responsibilities for every role gives people greater clarity and understanding about their expectations, which in turn can improve employee morale, overall performance and efficiency.

Collaboration—The move from operator to strategist can be a big step when working with functions that are accustomed to viewing finance as accountants. Repositioning finance as a strategic business partner requires fostering trust and collaboration. Establishing that trust begins with identifying areas of finance reinvestment that can drive significant value through targeted interventions, such as mix and margin analysis. “By starting small and addressing one critical issue for the business, the finance team not only can make a significant contribution, but also open the door to more opportunities to strengthen its relationship with business partners,” says Mr. Smith. Investing in the areas that are at the heart of the business also demonstrates that finance isn’t only about providing the same level of service with fewer resources. Rather, it is truly about doing more with less and unlocking tremendous enterprise value in the process.

Significant transformation efforts to centralize or outsource finance activities can lead to an exclusive focus on the activities transitioning out of the organization, even though the retained organization is where finance can often drive significant impact. “To be most effective, finance leaders should balance goals for near-term efficiency with those for long-term value creation by making investments to enhance the retained organization’s business partnering capabilities,” says Mr. Ehrenhalt.

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